Ross Portugeis :: Your Guide to the San Francisco Retail Real Estate Market
Home at last! After more than two decades of living and traveling around the world as a global media executive I returned to San Francisco. Many years on the road led me to two conclusions that have set my forward direction. First, I need to be part of a local community. Second, there is no community I want to be part of more than the city where I as born and raised.
And so, several years ago, I hung up my “corporate gloves” and returned the a mission of being involved in my community. Intrigued by the transformation of San Francisco over the decades I have become involved in a number of civic organizations, beginning with the San Francisco Planning + Urban Research Association (SPUR), an activist urban think tank that brings various elements of the public policy community together to enhance the livability and vitality of San Francisco.
It snowballed from there. Today my community involvement has expanded to include serving as a director of Urban Solutions, a non-profit economic development company; reviving the Sacramento Street Merchants Association; a member of the Union Square Association and of the Yerba Buena Alliance.
These activities have led me to a career in commercial real estate and I must say it’s a perfect fit. In my view, to be an effective real estate agent, particularly in retail, a high degree of knowledge and interest regarding the market-place, economic development, trends and demographic shifts is essential.
My intent with this section and my blog is to provide information and statistics on the San Francisco retail real estate market. You will find general and more static information in this section about the local retail real estate market and in my blog more current and casual commentary about the market as it evolves and changes. I hope you will find my blog interesting and informative. If you are a retailer, looking to open or expand in San Francisco and have questions regarding the best location for your business, the prevailing rent rates, the economic conditions and business environment I would be pleased to answer them for you.
Contributing Editor :: WorldTravelShop
Associate Vice President, Retail Group :: Colliers International
In addition to being Contributing Editor to World Travel Shop, Ross Portugeis is Associate Vice President – Retail Group at Colliers International, specializing in retail leasing.
San Francisco “The little big city”
Geographically, the City of San Francisco is only 7 x 7 square miles with a resident population of just over 750,000. However, add to that daily commuters from the 6 million-plus surrounding eight Bay Area county population and the 15 million tourists that visit the City every year and you have an average daytime population nearing two million.
Due to its limited geographic area San Francisco is the second most densely populated major city in the United States after New York. In recent years there has been a trend towards development of high rise residential condominiums, creating new neighborhoods and still greater population density.
Per the US Census Bureau, San Francisco and the surrounding Bay Area is one of the wealthiest regions in the United States. According to 2000 data the Bay Area has the highest median household income in the nation with 48% of households having income of over $75,000 a year as compared to only 26% of households nationwide.
San Francisco is a shopping Mecca for those looking for top name global luxury brand products as well as products that are uniquely San Francisco. Many retailers report that San Francisco per square footage sales are second only to New York and in some cases exceed those for New York.
While most people are aware of the major tourist and shopping destinations such as Union Square, Fisherman’s Wharf and Chinatown, just as San Francisco is widely diverse in the make up of its population, so too is its many neighborhood shopping districts. In the LOCATION section you will find a breakdown of these shopping districts.
Location, Location, Location
As the axiom goes, the three most important things in real estate are “location, location and location” and this and this is no less true for retailers – not only with respect to your actual location on the street or in a mall but with respect to which street, which mall, the overall retail mix and your adjacent retailers.
There are more than twenty shopping districts or corridors in San Francisco. Some primarily cater to local community needs, some have become destination spots appealing to targeted demographic groups and some have gained national recognition as a result of a concentration of product types or blend of retail offerings and cultural and leisure opportunities.
Each of these districts has their own style, identity and retail mix. Here’s a sampler for you:
UNION SQUARE :: this thirty-two block district is the retail-heart of the City and home to scores of world-class luxury brands and local high-end boutiques and designers. In addition, Union Square has dozens of spas, salons and eateries, from casual to white table cloth dining. With more than 11,000 first-class hotel rooms Union Square is a repeat destination for more than 11 million visitors a year. The opening of the million-plus square foot Westfield San Francisco Centre indoor mall, in late 2006, home to Bloomingdale’s, Nordstrom and scores of upscale national retailers has energized the lower portion of Union Square.
SOMA (South of Market) :: Years ago, much of this broad geographic area was a rather desolate industrial, manufacturing and shipping part of town. As a kid, if I got out of line, my parents would say “If you don’t behave I’m going to drop you off at the corner of 3rd & Howard Street” and that would bring me in line. Today, I think my response would be “Great. Can I have $20?” SOMA continues to undergo dramatic change in the City. A key area for residential condominium development, the SOMA area has become a vibrant cultural and entertainment district and home to SFMOMA, the Moscone Convention Center, hotels and many museums, art galleries, restaurants and clubs.
CENTRAL BUSINESS DISTRICT :: Consisting of the North and South Financial District, Market Street is the best known street here, lined with everything from mid-range apparel shops, electronics, convenience stores, stationers, bookstores and discount stores. But moving off of Market Street you will find goods and services that cater to the day-time business customer – banks, gifts, luggage, office furnishings and supplies, printing and copying with lots of casual dining and some of the City’s best known restaurants. And a step away from that is Jackson Square where you will find home furnishings, galleries and antiques. More a weekday 9-5 crowd, like other parts of San Francisco, the downtown area is trending towards more residential but don’t expect a 24/7 environment for a few years yet.
UNION STREET :: This several block commercial corridor has been an established tourist and local destination for years. The retail mix is broad. National retailers such as Rugby and Lululemon Athletica exist amongst scores of local and regional companies offering a wide variety fashion, jewelry, footwear and accessories. Union Street is also a busy dining and bar/nightlife destination attracting a good evening and weekend crowd.
FILLMORE STREET :: Trendy, young, aspirational and casual are words that come to mind for this vibrant daytime, evening and weekend community. A destination for the young and young-at-heart, Fillmore Street has an eclectic collection of shopping and dining opportunities with establishments such as Marc Jacobs, Sunhee Moon, Simon Pearce, Duxiana, vintage clothing stores, book stores, home furnishings, salons, restaurants and happening bars. The Fillmore Street “hot spot” has traditionally run between north of Geary Boulevard to Clay Street but development of condominium units and opening of jazz clubs like Yoshi’s and Rasselas is extending the “cool” further south.
SACRAMENTO STREET :: Located adjacent to Presidio Heights, San Francisco’s most affluent neighborhood, this eight block corridor is less “retail dense” than other districts as shops are interspersed with residential units. But for the knowledgeable, discerning shopper looking for home décor, art, antiques, fashion, upscale boutiques, jewelry, gifts and a more relaxed atmosphere this is a great experience. Sacramento Street is authentic San Francisco as most shops are local businesses. Sacramento Street has been referred to as “couch row” and you might think that this is homage to the fine home décor shops such as Pierre Deux, Kendall Wilkinson Design & Home, Anthem and Thos. Moser Cabinetmakers but that is not the case. Sacramento Street has been dubbed “couch row” because it purportedly has the highest concentration of psychologists in the United States!
NORTH BEACH :: Originally the Italian neighborhood, home to the “beatnik” movement and the “topless bar”, North Beach remains one of the more authentic, unique and historic of San Francisco experiences. Sidewalk dining, great food and a vibrant night-life attract the local crowd, regional crowd and visitors from around the world. But also you will find neighborhood oriented businesses, funky retail shops, the famous City Lights book store and an eclectic collection of products and services.
HAIGHT-ASHBURY :: Birthplace of the “hippy movement” Haight-Ashbury, often referred to simply as “the Haight” still possesses that counter-culture vibe and so it’s not surprising that on Haight Street you will find a bazaar like atmosphere with art/poster shops, hand-made jewelry, leather, musical instruments, tattoo parlors, skateboard shops, neighborhood convenience shops, eateries and of course the occasional “head shop”.
THE CASTRO :: This highly populated part of town is contains a blend of mix of merchants, restaurants, and businesses servicing the community and a strong worldwide tourist crowd wanting to come to visit the Castro’s colorful history as a Gay Mecca. Vibrant, eclectic and 24/7 shoppers will find a unique experience visiting many cool boutiques and shops as well as busy restaurants and bars.
SHOWPLACE SQUARE/POTRERO HILL :: Originally a part of the City’s industrial district, Showplace Square morphed into a “to the trade” (and design enthusiast) design district with an emphasis on everything for interior design – furnishings, rugs, kitchen, bathroom, art, antiques, architectural hardware. As with elsewhere in San Francisco, where residential development has occurred, Showplace Square is now “morphing” with Portero Hill, a residential neighborhood district, the result being a broader mix of retail shopping.
SUMMING UP :: With the above, I have briefly summarized less than half of the shopping districts in San Francisco and only scratched the surface of each. Indeed books have been written about this subject but that is not the intent here.
If you want to know what part of San Francisco might be the best location for your business,
give me a call at
(415) 477 9204.
Rents + Terms
Real estate is a market and markets are constantly changing. Things can stay the same for extended periods of time and things can change rapidly depending on external circumstances such as a strong or weak economic environment or regulatory change.
Thus, in an ever-changing world, the purpose of this section is to provide you with an overview of current rent rates in San Francisco and general retail lease terms for ground floor space ranging in size from several hundred to a few thousand square feet.
The following chart reflects the typical annual per square foot rent rates in different parts of the City. Note that these figures represent a typical rent range and there will be instances of spaces available outside of these ranges due to superior/inferior location, physical attributes and condition of the space.
|Low ($rsf/yr)||High ($rsf/yr)|
|CBD (Financial District)||$45||$75|
|Showplace Square/Potrero Hill||$25||$40|
Most retail leases are made on a Triple Net (NNN basis) where the Tenant is responsible for their own electric, janitorial and trash as well as their pro-rata share of property taxes and insurance.
“Percentage rent” leases, customarily found in malls, are the exception and not the rule in San Francisco. A typical lease term is five to ten years with an option to extend.
With regard to Tenant Improvement Allowances, in large mixed use retail/office buildings or properties held by large investment firms you stand a better chance of getting a TI Allowance. A good portion of San Francisco retail property is owned by smaller landlords, family owned, and in such instances you are more likely to get a period of free rent rather than actual TI dollars.
Regulation, Permits & Planning
Woe to the merchant that does not do their due diligence before signing that lease!
San Francisco has got to be one of the most political-charged and regulated cities in the United States when it comes to land use and zoning. Between the politicians, planners, community activists, neighborhood associations and merchants associations there can be a number of hoops to jump through before you are able to open your business.
One of the most high profile pieces of legislation to recently pass was the “Small Business Protection Act” which ostensibly seeks to protect certain neighborhoods from being overrun by national “formula retail” outfits.
Essentially, “formula retail” is defined as an operator that has more than 10 stores anywhere in the United States. In North Beach and Hayes Valley, for example, “formula retail” is completely forbidden. In other Neighborhood Commercial Districts (NCD’s) such as Union Street, Fillmore Street and Sacramento Street formula retail operators have to apply for a “conditional use permit” (CUP). The CUP process involves notifying the neighborhood community of your plans to open and a public hearing at the Planning Commission.
If you are fortunate and have done your community outreach effectively, this process will add two months to your opening. If you are not so fortunate and have to go through an appeals process it could take six months. If you are very unfortunate you will not receive a permit at all. I know of more than one occasion where a retailer has signed a lease agreement only to end up unable to open for business.
Aside from this, building permits and health department permits can take a long time and delay your opening schedule. So make sure that you perform your due diligence before signing that lease, ordering your inventory and planning your store opening – or if you want to save time and avoid pitfalls, engage a competent commercial real estate agent to help you.
A good agent will be able help you find the right location and negotiate a lease and will also be able to connect you with other necessary service providers such as architects and contractors who can more efficiently help you through the government maze concerning regulation planning and permits.
Recently, the San Francisco government launched the Small Business Assistance Center with the mission of fostering, promoting, and retaining small businesses in the City and County of San Francisco. The Small Business Assistance Center functions as the City's central point of information and referral for entrepreneurs and small businesses located in San Francisco, providing one-on-one case management. Here is a link to this valuable free resource: http://www.sfgov.org/site/sbc_index.asp?id=4345
Ross Portugeis Blog :: San Francisco Retail Real Estate
I hope you will find my blog interesting and informative. If you are a retailer, looking to open or expand in San Francisco and have questions regarding the best location for your business, rent rates, typical lease terms, economic conditions and/or the general business environment I would be pleased to answer them for you.